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How the OCC Is Building Crypto America (and Saving Banks From Extinction)

Three interpretative letters from the Office of the Comptroller of the Currency lay the groundwork for banks to become crypto custodians, payment companies and miners in blockchain networks.

Republished by Plato



Over the last 12 years, $1 trillion of value has appreciated into existence. It may be a little more or a little less tomorrow, give a few $100 billion. It may one day reach $10 trillion or $100 trillion or stay at $1 trillion forever. It may even go to $0. But regardless of all that, $1 trillion of value has indeed materialized and grown on blockchain-based financial networks since 2008. 

If you are a financial advisor or a trust company, you have missed out on $1 trillion in capital appreciation for your customers. Regardless of how we spin it, the core fact is that crypto assets have largely been un-advised. They have not been distributed by fiduciaries to the mass market. Instead, they have either (1) been directly owned by retail investors through crypto exchanges or decentralized apps or (2) been packaged and secured for safe handling by newly buy-side funds for the largest endowments and family offices in the world. That means retail and mass affluent investors are doing it for themselves at Coinbase or Binance or MetaMask.

Lex Sokolin, a CoinDesk columnist, is Global Fintech co-head at ConsenSys, a Brooklyn, N.Y.-based blockchain software company. The following is adapted from his Fintech Blueprint newsletter.

This pattern joins a similar fact base for stock trading. Passive exchange-traded fund asset allocation assets have gone through the roof, in part because they are the choice of fee-based financial advisors and wire houses that now control about $10 trillion in assets under management. Selling a diversified, cheap asset allocation as your core investment is a stable market equilibrium. It is logic. It is statistics. It is math incarnate. Who will argue with Bill Sharpe?

But the animal spirits (John Maynard Keynes’ term for what drives investors) are emotion and feeling. The animal spirits are narrative and story. The animal spirits are inequity, wealth redistribution, billionaire witch hunts and revolution. The animal spirits are a cry for help from under a massive, endless pile of useless, unavoidable debt.

Instead of financial advisors or other CFAs guiding the retail market in good decision-making, a newsfeed of what’s popular has driven Apple, Google, Tesla and the other John Galt hallucinations to the stratosphere. Don’t get us wrong. We love the robot as much as the next fintech commentator. But it is clear to us that “the masses” are not being “advised.” And that the capital appreciation that matters – cementing the next trillion-dollar networks for global future generations in work yet to emerge – is misunderstood and misrepresented by most financial professionals to their clients.

Your clients won’t be your clients if crypto hits $10 trillion. As a reminder, total U.S. M1 (money supply) is about $7 trillion, the tech market caps on the Nasdaq during the dot-com bubble were $3 trillion, all gold ever mined is $8 trillion, global FX reserves are $10 trillion, total equities are around $100 trillion and all asset classes (including real estate, art and pork bellies) add up to $500 trillion. So the crazies are not crazy for being crazy.

The OCC white knight

It is in this context that we want you to understand the recent “interpretive letters” from the Office of the Comptroller of the Currency. But first the background.

American financial regulation is an alphabet soup and has grown out of politics and crises. It looks to the past, taking the fact patterns in mistakes underlying market crashes and banking crises to create executive structures that prevent those same mistakes happening again. Banks and investment advisers are under the supervision of different authorities. Banks can’t sell you stock (generally) and wealth managers can’t sell you bank accounts (generally); though, of course, they can if packaged up into a bank holding company. If you’re big, you can do anything.

The OCC is part of the U.S. Treasury Department. So is the Financial Crimes Enforcement Network (FinCEN) as well as the Internal Revenue Service. FinCEN wants to make sure you don’t launder money and that know your customer/ant-money laundering informaton is sufficiently captured to allow some amount of sovereign control and leverage over the moneys within the U.S. economy. 

The OCC has a different set of goals. It supervises banks and it wants to make them safe and competitive. The current acting comptroller of the OCC is Brian Brooks, a former chief legal officer of Coinbase, the crypto brokerage (though he will reportedly be leaving the OCC soon). While Treasury Secretary Steven Mnuchin is skeptical of cryptocurrencies, Brooks is a clear proponent. But it doesn’t boil down to just personality – there is structural, causal complexity underneath. 

While there are about 4,000 banks in the U.S., and about as many credit unions, some of them are federally chartered under the OCC and some of them are state chartered. You can see that the overall share of regulated banking entities at the federal level is hovering around 20% to 30%. This creates a novel tension and a couple of key dynamics.

First, there are large returns to scale in being a bank. Assets at the giant, federally regulated banks like Citi and JPMorgan Chase, are ballooning. Deposits at small, state-scale banks are falling. Second, fintechs (e.g., Square, SoFi) are naturally availing themselves to intra-state commerce by having a digital distribution footprint. They default to seeking federal charters as well. This is why the OCC has spent so many calories on defining special purpose fintech charters, and why the local community bodies hate it.

Being a national body, the OCC competes with other national regulators like the Financial Conduct Authority in the U.K. or the Monetary Authority in Singapore for the best financial regulatory “product.” It must attract global capital and global talent. It is counterparty to organizations that engage in such games. So you can think of the OCC’s crypto posture as either (1) resulting from the DNA of the organization or (2) the impact of third-party pressure on the organization.

The most credible critics suggesting option (2), i.e., regulatory capture by the industry, are Angela Walch and Tim Swanson. I do not want to mischaracterize their arguments, so I recommend you click through on the links. At the core, their concerns focus on shadow banking (i.e., “risky” non-banking banking) and the mismatches in goals between non-expert crypto developers and economic policy experts. The state-level authorities play a different game. They participate in inter-state competition (i.e., is New York better than Wyoming?) and try to minimize the influence of federal overreach. Economically larger states want to defend their current position, including defending their large banking constituents, while smaller states want to lower switching costs so new entrants choose to charter there. This is why Wyoming pioneered a banking charter with Caitlin Long, which has been granted to crypto exchange Kraken in September 2020 and is now available to others.

Now, let’s say you are the OCC. A state like Wyoming has set precedent – almost like the legalization of cannabis use or the adoption of other progressive social policies. You see China launching a central bank digital currency. You see the Ethereum ecosystem with $25 billion in stablecoin deposits. You see American companies building U.S. dollar-denominated digital asset products to compete globally. You see Facebook and Google trying to eat into your banking sector. How do you defend your turf? How do you start to lay down the road, brick by brick?

Where is the road going?

On July 22, 2020, the OCC published Interpretive Letter #1170, allowing national banks can custody crypto assets.

On Sept. 21, 2020, the OCC published Interpretive Letter #1172, on holding stablecoin reserves. National banks can hold stablecoin reserves for customers.

On Jan. 4, 2021, the OCC published the OCC Chief Counsel’s view on the use of Independent Node Verification Networks and Stablecoins for Payment Activities. National banks can run blockchain nodes and use stablecoins for payments.

You can see the jigsaw puzzle coming together, even if the OCC’s letters are not the letter of the law. They can be challenged in court and they can be re-written by Congress through legislation. But they are today’s guidance for the financial industry, and in particular the national banking giants that hold $15 trillion of depository assets. Wells Fargo, Citigroup and JPMorgan are – by the stroke of the pen – crypto asset custodians, crypto payment companies and miners in blockchain networks.

What this means for the future

Allow us, for a moment, to raise our head above the trees to look at the forest.

Banks are quasi public-private institutions, attached to sovereign power. The central bank adjusts money supply to imperfectly target inflation, employment and growth. Banks create leverage of that money supply by lending out the money to consumers and businesses, which then circulates, gets deposited and lent out again. Narrow money of M1 today is about $6 trillion, while M2 is $19 trillion – about three times as large. This is a loose example of private-sector leverage that funds growth.

On the crypto side, a similar thing is happening in decentralized finance (DeFi). Instead of sovereign power, money is backed by software and the collateral it secures. In depositing ETH or other assets into Maker, you mint the DAI stablecoin. This can then be used to purchase other assets, which can be committed as collateral into lending markets like Aave or Compound to generate yield. Staked assets can then be further structured or wrapped into pools that earn market making fees on Yearn or elsewhere. Money is levered up and expands, creating leverage.

See also: Lex Sokolin – The Smart Money Economy

Bitcoin remains scarce, as does ether. Financial industries apply those scarce assets to economies for (hopefully productive) investment.

Back in the bank world, the banks must keep regulatory capital buffers to “ensure” the stability of the overall system. There is some percentage of assets committed against systemic collapse. To be a node in the traditional financial system, you must put capital aside to prevent a run on the bank and generate some sort of “trust” in the entire game. That capital yields a particular return, and must have a certain low risk profile. Bank of America alone has over $150 billion in such capital.

We think there is an analogy and lesson to be drawn here to crypto miners. Most next-generation crypto protocols use some staking, rather than proof-of-work mining, concepts. Whether you are a liquidity pool provider in DeFi or staking within Ethereum 2.0 to generate consensus, the committed capital is returning some rate of return for standing up a financial service. That capital is generating trust in the overall network, and a collateralization buffer in certain instances. While the analogy is not exact, we hear the rhyme in the poetry.

Banks should be large-scale miners or validators of blockchain networks. They already know how to do this. Many crypto natives will proclaim that this would imply a takeover by the system by the financial incumbents. That’s too simplistic. It would imply interoperability between existing economies and Web 3.0. It would bridge the global consumer makers into blockchain-based commerce.

And if you are paying attention, it has already happened with the OCC opening the door.




Coinbase Decentralization Claim Draws Fury From its Customers

Republished by Plato



In a blog post on Feb. 25 titled “Coinbase is a decentralized company, with no headquarters”, CEO Brian Armstrong stated that the firm has moved to a ‘remote first environment’.

No HQ = Decentralized?

He added that 52% of their employees have joined the company in a ‘post-office world’ and 95% of them have the option to work from home. Originally based in San Francisco, many company employees have dispersed across the globe since the beginning of 2020.

“It has helped us attract top talent. One of the best parts about being a decentralized company is that we can hire more of the best people.”

This does not make the company decentralized in crypto terms, as the respondents to the tweet pointed out.

Despite being one of the largest fiat to crypto onramps in the world, Coinbase has garnered a reputation for terrible customer service, higher than industry average fees, and questionable reliability when markets are volatile.

Coinbase Customers Lash Out

The barrage of comments came thick and fast and took aim at everything from customer support to the now predictable service outages during large crypto asset price movements.

“Also you have zero customer support (automated copy paste emails do not count), I guess you can call that decentralised too.”

Another Coinbase customer claimed that he had lost almost a thousand dollars in trading fees with just an $8,000 investment.

Someone else questioned the suspension of XRP stating that the company is still very centralized in the United States. Another disgruntled user stated;

“Coinbase [has come] a long way since 2011 in [the] crypto world. Unfortunately, [its] reputation [has become] tarnished due to unacceptable level of customer service and ignoring your most valuable asset – [the] customer.”

The majority of the complaints were regarding unanswered email and customer support inquiries though there were plenty of mentions of the frequent service outages;

“No headquarters. No customer service. No service at all when the market moves… Good for you coinbase.”

One respondent pointed out it was just a ploy to use a popular word at the moment just like the last bull run when companies added blockchain to their names.

At the time of writing, around 12 hours after the blog post was published, there were too many replies to read, and the vast majority of them were negative. It appears that Coinbase, which still has a number of whale investors, has also decentralized itself from its customers.

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What Bitcoin price levels will invalidate the short-term bearish scenario?

Republished by Plato



The price of Bitcoin (BTC) is continuing to range between $48,000 and $51,000, unable to break out of the $51,600 resistance level.

If Bitcoin struggles to surpass the $51,600 resistance area in the near term, technical analysts say the probability of a correction rises.

BTC/USDT 4-hour price chart (Binance). Source: TradingView

$51,600 is the key level to watch

According to Josh Olszewicz, a cryptocurrency trader and technical analyst, the $51,600 level is currently acting as a strong resistance level.

For Bitcoin to retest the all-time high at $58,000 and initiate a potential rally towards $62,000, it needs to cleanly move past $51,600, he explained. 

Hence, a rally beyond $51,600 is the clear invalidation point for any short-term bearish scenario for Bitcoin.

The failure to break out in the near term could result in a bearish test of lower support areas, found at around $42,000. He said:

“If 4h breaks down, be prepared for some uber bearish calls to start popping at 36.7k meanwhile, I’ll be bidding the daily Kijun at 42k. Alternatively, if $BTC breaks above 4h Cloud at 51.6k, I like ATH retest at 58k, R3 yearly pivot test at 62k, macro PF diag test at 70k, R4 yearly pivot test at 80K. Seasonality suggests we go neutral/sideways through March and then reach for those higher targets in Q2.”

The $42,000 support area is a key level because it marks the top of the previous rally. On Jan. 8, the price of Bitcoin peaked at $42,085 on Binance, seeing a steep correction afterwards.

Bitcoin dropping to $42,000 to retest the previous top as a support area would not be necessarily bearish beyond the short term, however. 

Whale clusters show similar levels of support

Moreover, analysts at Whalemap noted large inflows to whale wallets at $48,500 and $46,500, which they say should provide BTC with some support. 

“The current situation looks similar to the one we had at 29K,” they explained. What’s more, the $46,532 level may now be “the new $29,000,” which held as support during the previous correction in January before the rally continued. They added: 

The $55,400 is an important level to keep an eye on as well. Getting back above it will be a good sign

Whale cluster levels. Source: Twitter/@whale_map

The most compelling argument for a short-term Bitcoin drop

Bitcoin tends to seek liquidity after a prolonged consolidation, which means it can drop down to fill buy orders at lower support areas that can ultimately fuel a new rally.

A pseudonymous trader known as “Salsa Tekila” echoed this sentiment. He said that there is a big support area at $41,000, followed by resistance at $54,000. He wrote:

“My current take on $BTC mid term: 1) Support around $41K. 2) Resistance around $54K. Depending on context, I might trigger swings around those two vicinities. Likely just scalp until then, unless major events come to fruition.”

Bitcoin tested the $44,800 support level in the past 72 hours, but it was not enough to propel BTC above $51,600.

This trend could cause the price of Bitcoin to drop back to the $44,800 level or to a lower support level, at $42,000.

The ideal scenario would be for Bitcoin to hold onto the $44,800 support area if it drops again, stabilize it as a macro support level, and move back up.


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Nvidia supply shortage won’t stop $50M Q1 crypto miner sales, says CFO

Republished by Plato



Nvidia’s ongoing supply problems won’t stop the company from selling $50 million worth of its new CMP chip range in the first quarter of 2021, the company’s chief financial officer Colette Kress forecasted on Feb. 24.

Nvidia failed to meet demand from its core gaming customer base in 2020, and the trend looks set to continue into 2021. Added demand from a horde of cryptocurrency enthusiasts keen to direct Nvidia’s new RTX 30 series GPU to Ether (ETH) mining initially appeared to pile pressure on the company.

But the firm’s CFO expects the recently announced Cryptocurrency Mining Processor product line to hit $50 million in sales in the first quarter of the year. The CMP range is designed specifically for Ether mining, and its introduction was part of an attempt to allocate more units of its RTX 30 range to gamers.

Despite supply problems, Nvidia hit record revenues of $5 billion in the last quarter of 2020, while its stock price soared to all-time highs. This is a near-exact repeat of the market conditions present in 2018, when increased demand amid supply shortages pushed the stock price to the highest level in its history up to that time.

On Wednesday, United States President Joe Biden signed an executive order to address the shortage of semiconductors and microchips. A critical review will investigate the country’s failing supply lines, which have been shown to rely too much on Chinese manufacturing, highlighted by the COVID-19 pandemic.

The chip shortage boosted the value of the PHLX Semiconductor Index, which tracks the value of chip-related stocks, with the index gaining 70% in the past 12 months.

JPMorgan analyst Harlan Sur expects the pump to continue, even though the supply shortage won’t be corrected for some time. 

Sur recently told MarketWatch, “We believe semi companies are shipping 10% to 30% BELOW current demand levels and it will take at least 3-4 quarters for supply to catch up with demand and then another 1-2 quarters for inventories at customers/distribution channels to be replenished back to normal levels.” 

Sur said the previous quarter was the first in which every chip maker JPMorgan tracked actually exceeded forecasted earnings.


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